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Fundamentals of
Borrowing
The sensible use of
debt should be part of a sound financial strategy. Debt can enable you
to enjoy things that otherwise are currently beyond your reach. Borrowing
can also have an ugly side. Too much, too expensive or the wrong kinds
of debt can make life miserable. Developing good borrowing habits early
can help you avoid a lot of anguish later.
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Fundamentals
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The basics
Borrowing costs money. That is not necessarily bad. It just means
that when you pay it back, you have to pay more than you borrowed.
The components of a good debt strategy are quite simple:
- Choose when
to borrow and what to borrow for carefully.
- Find the
best interest rate and terms, based on your needs and wants.
- Live up to
your repayment responsibilities.
- Periodically
review your debt. Refinancing your mortgage or an auto loan may
save you money.
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The importance
of a good credit record
A good credit record does more than just make future credit approval
easier to get. Most lenders use your credit record to determine
credit limits and what rates to charge. A good credit record will
save you money. A program enables you to get a free credit report
once a year. You can request your free report at their website -
www.annualcreditreport.com. Otherwise you can order a report from
one of the three large credit reporting agencies. .
Order your credit report:
- Equifax 800/997-2493
- Experian
888/397-3742
- TransUnion
800/888-4213
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Common sense
borrowing habits
- Never borrow
what you cannot repay.
- Never borrow
for a luxury if you cannot afford the necessities.
- Prioritize
your borrowing.
- Reserve some
borrowing capacity for emergencies.
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Getting
help if needed
Take action immediately if your borrowing is getting out of control.
If credit cards are the problem, stop using them or even cut them
up. Contact lenders to develop a workable repayment plan. A qualified
credit counselor can help. |
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Consider
all the terms on all your borrowing
Comparing credit cards can be confusing. You have to consider interest
rates, fees and associated benefits. The right card for you should
reflect how you use it. If you pay the full balance monthly, the
interest rate is of little concern and you can focus on any annual
fee and benefits such as airline miles or cash back features. If
you carry over balances, the interest rate should be a top concern.
The right mortgage
" for you should balance interest rate, length, and down payment
requirements that fit your situation. Adjustable rate mortgages
usually have lower rates, but your payments may rise if interest
rates rise. Long-term mortgages usually lock in a higher rate. If
you expect to stay in your current home only a few years, an adjustable
rate mortgage may be best. If an increase in monthly payments would
be too painful, look at a fixed rate mortgage or an adjustable one
with rate adjustment limits.
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Prioritize
borrowing based on long-term value
- College educations
- Housing
- True necessities
- Autos
- Major furniture
purchases
- Vacations
- Expensive
jewelry rarely worn
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Summary
Being conservative in your use of borrowing can help you take control
of your financial future. Borrowing for the right reasons and living up
to your repayment responsibilities can make borrowing a useful financial
tool.
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Equal Housing Lender.